Beyond Meat’s Valuation: Are Investors Overpaying For This Meal?

Trefis is launching coverage of Beyond Meat (NASDAQ: BYND), one of the fastest growing food companies in the world, offering a portfolio of plant-based meat products, with a price estimate of $95 per share. The key factors in our investment thesis for the company include healthy revenue growth potential (revenue base increased from $16.2 million in 2016 to $87.9 million in 2018), improving margins, aggressive expansion plans, and a continuous rise in the number of consumers preferring plant-based meat which would, in turn, drive volume growth going forward. Below, we break-down the outlook for the company’s two business divisions and our valuation for the company based on projected FY 2020 results.

View the Trefis interactive dashboard analysis on What’s Driving Our $95 Price Estimate For Beyond Meat? You can modify our key forecasts to arrive at your own price estimate for the company. In addition, here is more Consumer Staples data.

Understanding Market Trends For Plant-Based Meat Products And Forecasting Volume Sales For Beyond Meat

• Beyond Meat’s volume sold (fresh + frozen meat) increased over 3.8x from 3.98 million pounds in 2016 to 15.24 million pounds in 2018.
• BYND, which operates in the $1.4 trillion global meat industry, achieved a sharp volume growth due to changing consumer preferences, with millennials switching to healthier alternatives to traditional meat, such as plant-based meat which offer health benefits and environmental conservation.
• According to a recent Nielsen report, annual U.S. sales of plant-based meat jumped 42 percent between March 2016 and March 2019 to a total of $888 million, compared to 1% growth of traditional meat.
• With the trend expected to continue, BYND is expected to add over 39 million pounds in volume over the next two years, driven by an increase in the sale of fresh meat.
• The company’s frozen meat sales are expected to drop, driven by discontinuation of a few products, as sales of frozen foods in the US over the 2016-2021 period is expected to experience a negative compound annual growth rate (CAGR) of -1.2%, as the health benefits and quality of fresh meat outweighs the convenience provided by ready-to-heat frozen products, which has shifted more consumers towards fresh meat products.

Beyond Meat’s Revenue Trends and Expectations

• Beyond Meat has added $71.8 million to its revenue over the last two years.
• Increasing sales from both its retail and restaurant and food service (R&F) outlet divisions, is likely to add a whopping $270 million in revenue over the next two years.

Segment Performance

A) Retail Channel

• Under this segment, the company sells its flagship plant-based meat products in meat cases through its retail partners, which include Albertsons, Kroger, Wegmans, and Whole Foods Market.
• Segment revenue increased from $12.3 million in 2016 to $50.8 million in 2018, driven by higher volume sold and increase in sales of its flagship product – The Beyond Burger. Retail channel sales contributed 58% of total revenue in 2018.
• We expect revenue to grow by more than 3.6x in the next two years, to about $185 million in 2020, driven by increasing brand awareness, rising volume, and domestic as well as international expansion plans.

B) Restaurants and Food Service Outlets

• Under this segment, the company sells its flagship Beyond Burger and Beyond Sausages through approximately 12,000 restaurant and food service outlets – including BurgerFi, Bareburger, Carl’s Jr., Del Taco, TGI Fridays, and A&W Canada – in the United States and Canada.
• Segment revenue increased from $3.84 million in 2016 to $37.16 million in 2018, driven by increasing sales of The Beyond Burger and Beyond Sausage offerings. R&F sales contributed 42% of total revenue in 2018.
• We expect revenue to grow by more than 4.6x in the next two years, to about $173 million in 2020, driven by rising volume and plans to tie-up with additional outlets.

BYND’s Operating Margins

• Beyond Meat has been incurring operating losses since its inception, though the operating margins have witnessed continuous improvement due to the rising revenue base.
• However, we expect BYND to break-even at the operating profit level in FY 2019, with further improvement in profitability in 2020, driven by sharp growth in top line, fixed cost being absorbed by healthy growth in volumes, partially offset by higher investment in research and development, and marketing cost to enhance brand awareness.
• Operating profit margin is expected to come in at 0% in 2019 and 1.2% in 2020, significantly higher than -31.8% in 2018.

Estimating Beyond Meat’s Revenue Per Share

• Revenue per share is expected to drop from $13.99 per share in 2018 to $3.55 per share in 2019 due to an increase in shares outstanding post the IPO in May 2019.
• The metric is expected to improve to $5.95 per share in 2020, led by higher revenues.

Calculating Trefis Stock Price Estimate of $95 Per Share for BYND’s Stock

• We are valuing BYND at about 16x projected FY’20 revenue per share (RPS), significantly lower than its current trading multiple of 54x.
• However, it is much higher than its major peers (Tyson Foods, Conagra Brands, and General Mills), who are trading at less than 2x RPS.

Trefis’ stock price estimate of $95 per share for Beyond Meat’s stock is much lower than its current market price of $160, suggesting that the stock is currently overvalued.

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